Markets, G20, Oil, Gold, Bitcoin

Crucial week ahead

The next week could be hugely influential for the rest of the year so it's hardly surprising to see markets trading a little flat to kick things off.

Investors are heading into this period in a buoyant mood, with US markets back in record territory and global stocks having enjoyed a very good week. Central banks have done their part in supporting the rally, with both the ECB and Fed last week clearly indicating that stimulus is just around the corner, much to the relief of investors that had assumed so much. Whether they'll both follow through on these suggestions though may well depend on how this week goes.

The G20 at the end of the week is what everyone will be focused on in the coming days, with the trade war between the world's two largest economies representing the greatest risk to the global outlook. While both sides appear keen to give the impression that they will take or leave a deal, I think it's quite clear that it's in both their interest - and everyone else's for that matter - to find common ground and end this now. More tariffs will only hurt growth more and increase the need for central banks to play a more active role.

Expectations at this moment are relatively balanced. If both sides can agree to restart talks and work towards a deal while not implementing any further tariffs, I think investors will be relieved. In fact, from a markets perspective, you could even argue that this is the favourable outcome as the Fed and others would likely then follow through on cutting rates, which may not necessarily be the case in the near-term if the meeting goes better than expected.

More reason to be bullish on oil?

Oil prices have been given a lift over the last week following the escalation in the Gulf, as Iran shot down a US drone and Trump reportedly came extremely close to retaliating and escalating the conflict considerably. The importance of the Strait of Hormuz for global oil markets has been heavily reported, which has strongly contributed to it finally breaking higher having remained under pressure for weeks.

There were many positive influences that enabled oil to finally break free from the shackles of the bears, including the stock market rally, surprise inventory drawdown and positive comments ahead of this week's Trump/Xi meeting. Whether this will be sustained this week will depend on a number of factors, most notably that meeting and the prospect of further escalation in the Gulf. The key levels above now are $59-60 in WTI and $67-68 in Brent.

Gold pauses for breath

Gold has done very well out of the plunge in the dollar last week. In meeting market expectations, the Fed pulled the rug from under the dollar and sent it tumbling to a three month low. While investors were confident that they were right on rates, they clearly didn't have the same confidence in the Fed to live up to expectations. This has propelled gold back above $1,400 for the first time since September 2013, a reminder back to when we were previously in full easing mode and heavily reliant on central banks.

Having broken through $1,400, gold quickly ran into resistance around $1,410 but it doesn't seem to be lacking any real momentum. We have to go back a long way to look for past indications of support and resistance but it isn't too surprising to see that last time we were trading around these levels, this was found around $1,420 and $1,440. After such a strong rally, it will be interesting to see if momentum can be in any way maintained heading into these levels.

Facebook's Libra excites cryptocurrency bulls

The aftermath of the early 2018 cryptocurrency crash last longer than many enthusiasts may have hoped but it would appear that bitcoin has finally burst back to life, soaring back above $10,000 for the first time since March last year. Bitcoin has slowly - by its own standards - been rising in recent months but the launch of Facebook's Libra has clearly been a catalyst for the recent surge.

The publicity that the launch has once again brought to the space combined with the legitimacy is offers has understandably excited the community and we've seen before that you don't get a normal response when this happens. Whether it actually endorses something like bitcoin or not is perhaps not that important right now, particularly to those that have never lost the faith. It late 2017 is anything to go by, the coming weeks could be a wild ride.